Risk & Compliance

Brokerage to Pay Record Fine Over Secret Trading Desk

The SEC says ITG's Project Omega misused the confidential data of its "dark pool" subscribers to make trades.
Matthew HellerAugust 13, 2015

Brokerage firm Investment Technology Group has agreed to pay an $18 million fine to settle charges it operated a secret trading desk that misused the confidential trading information of clients who subscribed to its “dark pool.”

The secret trading operation, known as Project Omega, relied on improperly accessing client data from live streams created to help investors trade orders in the stock market and in ITG’s Posit dark pool, the U.S. Securities and Exchange Commission said in an administrative order.

The $18 million fine is the largest ever in an alternative trading system case. ITG also agreed to pay disgorgement of $2,081,034 in revenues generated by Project Omega plus prejudgment interest of $256,532.

According to The Wall Street Journal, profits from the desk, which was shut down in July 2011 after trading more than 1.3 billion shares of stock, totaled $124,000.

“ITG created a secret trading desk and misused highly confidential customer order and trading information for its own benefit,” Andrew J. Ceresney, director of the SEC’s Division of Enforcement, said in a news release. “In doing so, ITG abused the trust of its customers and engaged in conduct justifying the significant sanctions imposed in this case.”

Bloomberg said the action against ITG is the latest effort by regulators to police wrongdoing on alternative trading systems, which allow clients to buy and sell shares with more anonymity than they can on traditional stock exchanges.

Project Omega used two algorithmic trading strategies, the SEC said, one of which traded against subscribers in the Posit dark pool.

“While Project Omega was engaging in proprietary trading, including with ITG’s own customers, ITG was simultaneously promoting itself, and Posit, as an independent ‘agency-only’ broker that did not have conflicts of interest with its customers and that protected the confidentiality of its customers’ trade information,” the SEC alleged.